SLOVAKIA: extended taxation of the insurance premiums in preparation

A new indirect taxation system for the insurance premium is in preparation in Slovakia, replacing the current special insurance 8% levy with a rate which will vary from 2 to 18% depending on the type of the policy, local press reads.

The Slovak Finance Ministry plans to submit to the cabinet, in April, a definitive bill on the insurance premium tax. Parliament might approve the bill by the summer, official sources have told the press, meaning that the new legislation should become effective as of October 2018. Currently, the final wording of the bill is still under debate with the insurance sector.

"The insurance premium tax is a civilized tool that has been implemented in most European countries," Finance Minister Peter Kazimir said in a TV interview, adding that one should not expect the new tax to increase prices of insurance policies because insurers' current profitability show there is enough room for the new tax to be paid.

SLASPO, the Slovak Insurance Association has criticized the new regulatory initiative for several reasons, starting with the low insurance penetration which requires rather incentivizing insurance buying than over taxing it. Moreover, it seems that such a measure is seen also as morally incorrect, because it "affects people who have voluntarily and reasonably concluded an insurance policy to protect themselves or their property from unforeseen events and did not fall into the social network of the state. Insurance tax means that this act of responsibility is taxed in the same way as it is taxed by excise duty, the "irresponsibility" in the form of the purchase of cigarettes."

Beside the moral issues, SLASPO says that insurers expected the new act to "turn the very controversial 8% levy into a clear and transparent tax," but "the bill on insurance tax in its current form is an unpleasant surprise for the insurance market." The proposed bill does not eliminate the current problems, on the contrary, it deepens them.

Based on the official "interim consultation", the insurance industry expects that the tax will only concern non-life insurance, will be uniform and as administratively as difficult as possible, a SLASPO's official comments on the Bill say. The premium tax should not be part of the premium but should be calculated from the premium as a separate claim of the state and linked to the total amount of the premium, and the law should impose an obligation on the client to pay this tax to the insurance company together with the premium. Thus, insurance companies should have only a tax-collecting role. Such a solution would not affect the profitability of existing insurance contracts.

However, the published proposal considers the tax to be paid by the insurance company. It is not clear from the draft law by whom the tax is to be paid - whether the client or the insurance company. It is also unclear whether, in contracts concluded before the effective date of the law, the insurance company may increase the premium for the new tax (and hence the tax will be borne by the client) without the agreement of the client. The text of the bill is still being analyzed by sector experts, but at first glance it appears that the proposal provides that the tax will be paid by the insurance company from the existing premium and therefore considers retroactivity t. j. paying tax and past deductions, where the tax is not accounted for in the insurance. This would be critical, especially for life insurance, which could be lost due to tax, but the insurance company would not be able to denounce them.

An unfavorable novelty in the bill is the extension of the tax to life insurance, especially because this way income provided by life insurance will be subject to multiple taxation.

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